[Federal Register Volume 68, Number 4 (Tuesday, January 7, 2003)]
[Notices]
[Pages 837-841]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-272]



[[Page 837]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47114; File No. SR-OC-2002-04]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by OneChicago, LLC Relating to 
Listing Standards for Security Futures Products

December 31, 2002.
    Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-7 under the Act,\2\ notice is hereby given 
that on November 7, 2002, OneChicago, LLC (``OneChicago'') filed with 
the Securities and Exchange Commission (``SEC'' or ``Commission'') the 
proposed rule change described in Items I and II below, which Items 
have been prepared by OneChicago. On December 11, 2002, OneChicago 
filed Amendment No. 1 to the proposed rule change. The Commission is 
publishing this notice to solicit comments on the proposed rule changes 
from interested persons. OneChicago also filed the proposed rule change 
with the Commodity Futures Trading Commission (``CFTC''), together with 
written certifications under Section 5c(c) of the Commodity Exchange 
Act (``CEA'') \3\ on November 6 and 7, 2002.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(7).
    \2\ 17 CFR 240.19b-7.
    \3\ 7 U.S.C. 7a-2(c).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Description of the Proposed Rules

    OneChicago is proposing to adopt rules on listing standards for 
security futures contracts (``Eligibility and Maintenance Criteria for 
Security Futures Products'') to comply with the requirements under 
Section 6(h)(3) of the Act \4\ and the criteria under Section 
2(a)(1)(D)(i) of the CEA.\5\ The OneChicago Listing Standards are, for 
the most part, substantially identical to the sample listing standards 
(the ``Sample Listing Standards'') included in Staff Legal Bulletin No. 
15 (``SLB 15''),\6\ except that the OneChicago Listing Standards:
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78f(h)(3).
    \5\ 7 U.S.C. 2(a)(1)(D)(i).
    \6\ SEC, Division of Market Regulation, Staff Legal Bulletin No. 
15: Listing Standards for Trading Security Futures Products 
(September 5, 2001) [available at http://.sec.gov].
---------------------------------------------------------------------------

    [sbull] Reflect the modifications to the statutory listing 
standards requirements adopted by the Commission and the CFTC with 
respect to shares of exchange-traded funds, trust-issued receipts, 
shares of registered closed-end management investment companies, and 
American Depositary Receipts (``ADRs'') \7\ and
---------------------------------------------------------------------------

    \7\ See Joint Order Granting the Modification of Listing 
Standards Requirements (Exchange-Traded Funds, Trust-Issued Receipts 
and shares of Closed-End Funds), Securities Exchange Act Release No. 
46090 (June 19, 2002), 67 FR 42760 (June 25, 2002) and Joint Order 
Granting the Modification of Listing Standards Requirements 
(American Depository Receipts), Securities Exchange Act Release No. 
44725 (August 20, 2001), 67 FR 42760 (June 25, 2002).
---------------------------------------------------------------------------

    [sbull] Establish an approximately equal dollar-weighting 
methodology for physically settled futures based on narrow-based 
security indices (such indices are referred to hereafter as ``NBIs''), 
which (i) Requires the number of each component security to be rounded 
up or down to the nearest multiple of 100 shares or receipts in the 
course of the initial index composition and any subsequent rebalancing, 
(ii) contemplates mandatory annual rebalancing of such indices under 
specified circumstances, complemented by OneChicago's ability to 
rebalance indices on an interim basis if it so elects, and (iii) 
ensures that outstanding contracts will not be affected by any 
rebalancing.
    In connection with the adoption of the OneChicago Listing 
Standards, OneChicago is proposing the following rule changes, which 
are referenced in Item II.A.1.b below, from the version of the 
OneChicago Rulebook filed as part of OneChicago's notice registration 
with the Commission on Form 1-N: \8\
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 46669 (October 16, 
2002); 67 FR 65156 (October 23, 2002) (File No. 10-133).
---------------------------------------------------------------------------

    [sbull] An amendment to its Rule 213 (the ``Information Sharing 
Rule''), to add the following text after the first sentence: ``The 
Chief Executive Officer, or his or her delegate, is authorized to 
provide information to any such organization, association, board of 
trade or regulator that is a party to an information sharing agreement 
with the Exchange, in accordance with the terms and subject to the 
conditions set forth in such agreement.'';
    [sbull] An amendment to its Rule 603 (the ``Market Manipulation 
Rule''), to (i) remove the reference to market demoralization from the 
heading and (ii) replace the reference to ``upsetting the equilibrium 
of the market in any Contract'' with the words ``generating unnecessary 
volatility'';
    [sbull] An amendment to its Rule 605 (the ``Sales Practice Rule''), 
to provide that each Clearing Member, Exchange Member (including its 
Related Parties) and Access Person shall comply with any and all sales 
practice rules from time to time promulgated by the National Futures 
Association (``NFA'') (in the case of any Clearing Member, Exchange 
Member or Access Person that is registered with the NFA) or the 
National Association of Securities Dealers, Inc. (``NASD'') (in the 
case of any other Clearing Member, Exchange Member or Access Person) 
with respect to security futures.
    [sbull] An amendment to its Rule 610 (the ``Trading Ahead Rule'') 
to remove the requirement that a customer's consent under such rule be 
in writing and indicated on each relevant order; and
    [sbull] An amendment to its Rule 611 (the ``Trading Against 
Rule''), to remove the requirement that a customer's consent under such 
rule be in writing and given or renewed within 12 months of the 
transaction at issue.
    OneChicago is also filing herewith proposed Rules 403, 415, 419, 
501, 601, 602, 604, 612 and 613, which remain unchanged from the 
Rulebook filed with the Commission as part of OneChicago's notice 
registration on Form 1-N.\9\ OneChicago Rule 515, while also referenced 
in Item II.A.1.b below, is not filed in this proposed rule change 
because it was the subject of a separate filing by OneChicago on Form 
19b-4, and was approved by the Commission on November 7, 2002.\10\
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 46669 (October 16, 
2002); 67 FR 65156 (October 23, 2002) (File No. 10-133).
    \10\ See Securities Exchange Act Release No. 46787 (November 7, 
2002); 67 FR 69059 (November 14, 2002) (SR-OC-2002-01).
---------------------------------------------------------------------------

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    OneChicago has prepared statements concerning the purpose of, and 
statutory basis for, the proposed rules, burdens on competition, and 
comments received from members, participants, and others. The text of 
these statements may be examined at the places specified in Item IV 
below. These statements are set forth in Sections A, B, and C below.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Section 6(h)(3) of the Act \11\ sets forth a number of requirements 
for listing standards applicable to security futures products. Among 
other things, that Section provides that such listing standards must 
(i) be no less restrictive than comparable listing standards for 
options traded on a national securities

[[Page 838]]

exchange \12\ and (ii) require that trading in security futures 
products not be readily susceptible to manipulation of the price of 
such products or of the underlying securities or options on such 
securities.\13\
---------------------------------------------------------------------------

    \11\ 15 U.S.C 78f(h)(3).
    \12\ 15 U.S.C. 78f(h)(3)(C).
    \13\ 15 U.S.C. 78f(h)(3)(H).
---------------------------------------------------------------------------

a. OneChicago Listing Standards
    According to OneChicago, Commission staff published SLB 15, 
including the Sample Listing Standards (which were derived from typical 
listing standards used by exchanges trading options based on securities 
or security indices), to provide guidance as to how an exchange can 
comply with the foregoing requirements, but noted that different 
listing standards could also be consistent with the Act.
    OneChicago believes that the Sample Listing Standards, as modified 
by the order relating to shares of exchange-traded funds, trust-issued 
receipts and shares of registered closed-end management investment 
companies,\14\ constitute a useful and appropriate model to be used in 
developing initial listing and maintenance standards for security 
futures products. The OneChicago Listing Standards therefore generally 
follow the Sample Listing Standards (as so modified), subject to the 
additional modifications relating to physically settled futures based 
on NBIs described under Item I. above. The additional modifications are 
(i) a function of OneChicago's providing for physical settlement of 
futures contracts based on NBIs, and accordingly, are limited in 
application to such physically settled contracts, and (ii) designed to 
enhance the usefulness and effectiveness of futures on NBIs in 
connection with hedging, arbitrage and other investment strategies.
---------------------------------------------------------------------------

    \14\ See supra note 7.
---------------------------------------------------------------------------

    Unlike options on security indices currently listed on national 
securities exchanges, all NBI futures to be listed on OneChicago are 
expected to be physically settled. OneChicago believes that physical 
settlement will effectively reduce the basis risk related to trading in 
these products and lead to tighter bid-ask spreads, thereby limiting 
the potential for market manipulation. OneChicago believes that its 
decision in favor of physical settlement therefore furthers the 
statutory objective of avoiding price manipulation of security futures 
products and their underlying securities.\15\ Physical settlement, 
however, makes it impracticable to have NBIs consisting of component 
securities in increments that are smaller than 100 shares or receipts, 
which corresponds to customary increments for transactions in the 
markets for those securities. For this reason, rounding is a necessary 
step in the initial index composition and any subsequent rebalancing.
---------------------------------------------------------------------------

    \15\ See 15 U.S.C. 78f(h)(3)(H).
---------------------------------------------------------------------------

    If the composition of NBIs were subject to frequent or retroactive 
changes as a result of index rebalancings, OneChicago believes that NBI 
futures would lose their potential as particularly useful and effective 
tools in the implementation of hedging, arbitrage and other investment 
strategies.
    The Sample Listing Standards contemplate at least quarterly 
rebalancings of equal dollar-weighted indices. The OneChicago Listing 
Standards modify this requirement by providing that an approximately 
equal dollar-weighted NBI underlying a physically settled security 
futures product is to be rebalanced annually, but only if the aggregate 
value of the security position with the highest value is two or more 
times greater than the aggregate value of the security position with 
the lowest value in the index for a specified time period. OneChicago 
believes that this test adequately balances the potential adverse 
consequences of too frequent changes in the composition of any NBI with 
the objective that an NBI should be, and remain, representative of the 
industry segment to which it relates. OneChicago will have the ability 
to rebalance any NBI on an interim basis should this become necessary 
as a result of exceptional changes in the relative values of the 
component securities. As OneChicago plans to list only contracts 
expiring on the next two quarterly expiration dates (based on the 
quarterly cycle of March, June, September and December) and the nearest 
two serial monthly expiration dates that are not quarterly expiration 
dates, OneChicago will be able to phase in contracts based on a 
rebalanced NBI, and thereby replace contracts with open interest based 
on the previous NBI composition, within a short period of time.
    OneChicago believes it is critical, however, that investors with 
open positions in contracts based on a particular NBI be able to rely 
on the number of shares or receipts evidencing each component security 
remaining unchanged for purposes of those contracts. Accordingly, the 
OneChicago Listing Standards clarify that outstanding contracts will 
not be affected by any rebalancing.
    Unlike the Sample Listing Standards (and the listing standards for 
options on which they are based), exchange rules and other requirements 
applicable to a variety of financial instruments based on ``narrowly-
based'' security indices or baskets contemplate modifications to a pure 
equal dollar-weighted composition methodology and/or do not require 
automatic periodic rebalancings. For example, OneChicago believes that 
the rules of the American Stock Exchange (``Amex'') for portfolio 
depositary receipts \16\ and index fund shares \17\ expressly permit a 
``modified equal-dollar weighting methodology'' and do not appear to 
provide for rebalancing. Similarly, no rebalancing is required for the 
component securities represented by any series of trust-issued receipts 
traded on Amex.\18\ Further, OneChicago notes that the offering 
documents for the ``Holding Company Depositary Receipts (HOLDRS)'' 
developed by Merrill Lynch & Co., Inc., another exchange-listed 
instrument designed to enable investors to indirectly gain exposure to 
equity securities of multiple issuers through a single investment, 
specify that the underlying trust assets will not change during the 
(indefinite) term of the trust unless one of several narrowly defined 
``reconstitution events'' occurs. In this connection, OneChicago notes 
that single-security futures based on at least some of the 
aforementioned instruments are permissible under the relief granted by 
the Commission and the CFTC \19\ with respect to shares of exchange-
traded funds, trust-issued receipts and shares of registered closed-end 
management investment companies.
---------------------------------------------------------------------------

    \16\ See Amex Rule 1000, in particular Commentary .03 thereto.
    \17\ See Amex Rule 1000A, in particular Commentary .02 thereto.
    \18\ See Amex Rule 1202, in particular Commentary .01 thereto.
    \19\ See supra note 7.
---------------------------------------------------------------------------

    The contents of the OneChicago Listing Standards, including the 
approximately equal dollar-weighting methodology described above, will 
be publicly available and fully disclosed. Finally, OneChicago believes 
that it is also worth noting that, despite the differences between the 
OneChicago Listing Standards and the Sample Listing Standards, 
hypothetical indices following one or the other methodology have been 
shown to be highly correlated.
b. Section 6(h)(3) Requirements
    Section 6(h)(3) of the Act \20\ contains detailed requirements for 
listing standards and conditions for trading applicable to security 
futures products. Set forth below is a summary of each such requirement 
or condition, followed by a brief explanation of how OneChicago will 
comply with it,

[[Page 839]]

whether by particular provisions in the OneChicago Listing Standards or 
otherwise.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78f(h)(3).
---------------------------------------------------------------------------

    Clause (A) of Section 6(h)(3) of the Act \21\ requires that any 
security underlying a security future be registered pursuant to Section 
12 of the Act.\22\ This requirement is addressed by sections I.A.(ii), 
II.A.(i), III.A.(ii)(b) and IV.A.(ii)(a) of the OneChicago Listing 
Standards.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78f(h)(3)(A).
    \22\ 15 U.S.C. 78l.
---------------------------------------------------------------------------

    Clause (B) of Section 6(h)(3) of the Act \23\ requires that a 
market on which a physically settled security futures product is traded 
have arrangements in place with a registered clearing agency for the 
payment and delivery of the securities underlying the security futures 
product. All security futures products initially proposed to be traded 
on OneChicago will be physically settled. OneChicago has entered into 
arrangements with both The Options Clearing Corporation (``OCC'') and 
the clearinghouse of the Chicago Mercantile Exchange Inc. (``CME''), 
both of which are registered clearing agencies, relating to the 
clearing of security futures products. By virtue of the CME 
clearinghouse being an associated clearinghouse of OCC, and OCC having 
in place arrangements with the National Securities Clearing Corporation 
for the delivery of securities underlying physically settled security 
futures products, OneChicago believes that the payment and delivery of 
the securities underlying OneChicago's security futures products in 
accordance with the statutory requirements should be ensured.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78f(h)(3)(B).
---------------------------------------------------------------------------

    Clause (C) of Section 6(h)(3) of the Act \24\ provides that listing 
standards for security futures products must be no less restrictive 
than comparable listing standards for options traded on a national 
securities exchange or national securities association registered 
pursuant to Section 15A(a) of the Act.\25\ For the reasons discussed 
under Item II.A.1. above, notwithstanding specified differences between 
the Sample Listing Standards and the OneChicago Listing Standards, 
OneChicago believes that the latter are no less restrictive than 
comparable listing standards for exchange-traded options.
---------------------------------------------------------------------------

    \24\ 15 U.S.C. 78f(h)(3)(C).
    \25\ 15 U.S.C. 78o-3(a).
---------------------------------------------------------------------------

    Clause (D) of Section 6(h)(3) of the Act \26\ requires that each 
security future be based on common stock or such other equity 
securities as the Commission and the CFTC jointly determine 
appropriate. This requirement is addressed by sections I.A(i), 
III.A(ii)(c) and IV.A(ii)(b) of the OneChicago Listing Standards.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78f(h)(3)(D).
---------------------------------------------------------------------------

    Clause (E) of Section 6(h)(3) of the Act \27\ requires that each 
security futures product be cleared by a clearing agency that has in 
place provisions for linked and coordinated clearing with other 
clearing agencies that clear security futures products, which permits 
the security futures product to be purchased on one market and offset 
on another market that trades such product. OneChicago notes that 
pursuant to Section 6(h)(7) of the Act,\28\ the foregoing requirement 
is deferred until the ``compliance date'' (as defined therein). 
OneChicago expects that both OCC and the CME clearinghouse will have in 
place procedures complying with the requirements of clause (E) after 
such ``compliance date.''
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78f(h)(3)(E).
    \28\ 15 U.S.C. 78f(h)(7).
---------------------------------------------------------------------------

    Clause (F) of Section 6(h)(3) of the Act \29\ requires that only a 
broker or dealer subject to suitability rules comparable to those of a 
national securities association registered pursuant to Section 15A(a) 
of the Act \30\ effect transactions in a security futures product. This 
requirement is addressed by the Sales Practice Rule. As amended, the 
Sales Practice Rule requires all security futures intermediaries 
entering into transactions on OneChicago to comply with the applicable 
sales practice rules from time to time promulgated by the NFA (in the 
case of any Clearing Member, Exchange Member or Access Person that is 
registered with the NFA) or the NASD (in the case of any other Clearing 
Member, Exchange Member or Access Person), both of which are national 
securities associations.
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 78f(h)(3)(F).
    \30\ 15 U.S.C. 78o-3(a).
---------------------------------------------------------------------------

    Clause (G) of Section 6(h)(3) of the Act \31\ requires that each 
security futures product be subject to the prohibition against dual 
trading in Section 4j of the CEA \32\ and the rules and regulations 
thereunder or the provisions of Section 11(a) of the Act \33\ and the 
rules and regulations thereunder. Security futures intermediaries 
trading on OneChicago will be subject to the aforementioned statutory 
and regulatory prohibitions against dual trading by virtue of 
OneChicago Rule 604 previously included in Exhibit A-5 to OneChicago's 
Form 1-N, filed with the Commission on August 20, 2002,\34\ which 
requires such intermediaries to comply with all applicable law. 
OneChicago Rules 610 through 613 contain customary provisions relating 
to the priority of customers' orders, trading against customers' 
orders, withholding orders and disclosing orders, consistent with 
Regulations Sec. Sec.  155.2 through 155.4 under the CEA.\35\ The 
amendments reflected in Rules 610 and 611 as filed herewith reflect the 
fact that the customer consents referred to therein are not generally 
required to be in writing or renewed. OneChicago notes, however, that 
the prohibition of dual trading in security futures products as set 
forth in Regulation Sec.  41.27\36\ adopted pursuant to Section 4j(a) 
of the CEA \37\ by its terms only applies to a contract market 
operating an electronic trading system if such market provides 
participants with a time or place advantage or the ability to override 
a predetermined algorithm. Since those conditions do not exist on 
OneChicago, OneChicago has no specific rule prohibiting dual trading.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78f(h)(3)(G).
    \32\ 7 U.S.C. 4j.
    \33\ 15 U.S.C. 78k(a).
    \34\ See supra note 8.
    \35\ 17 CFR 155.2-155.4.
    \36\ 17 CFR 41.27.
    \37\ 7 U.S.C. 4j(a).
---------------------------------------------------------------------------

    Clause (H) of Section 6(h)(3) of the Act \38\ provides that trading 
in a security futures product must not be readily susceptible to 
manipulation of the price of such security futures product, nor to 
causing or being used in the manipulation of the price of any 
underlying security, option on such security, or option on a group or 
index including such securities. As discussed in Item II.A.1. above, 
the eligibility and maintenance criteria for security futures products 
contained in the OneChicago Listing Standards have been designed to 
ensure that the products that will be listed on OneChicago and the 
underlying securities will not be readily susceptible to price 
manipulation. In addition, Rule 603 in the OneChicago Rulebook, as 
amended by this filing, prohibits market manipulation (including 
generating unnecessary volatility or creating a condition where prices 
do not or will not reflect fair market values). The amendments 
reflected in Rule 603 as filed herewith were designed to avoid the use 
of terms or concepts that are not germane to futures markets. 
OneChicago Rules 415(b) and 419 implement the requirements contained in 
Rule 6h-1, under the Act \39\ relating to settlement and regulatory 
halts with respect to security futures products.
---------------------------------------------------------------------------

    \38\ 15 U.S.C. 78f(h)(3)(H).
    \39\ 17 CFR 240.6h-1.

---------------------------------------------------------------------------

[[Page 840]]

    Clause (I) of Section 6(h)(3) of the Act \40\ requires that 
procedures be in place for coordinated surveillance among the market on 
which a security futures product is traded, any market on which any 
security underlying the security futures product is traded, and other 
markets on which any related security is traded to detect manipulation 
and insider trading. The relevant provisions are OneChicago Rules 601, 
602 and 603, which prohibit fraudulent acts, fictitious transactions 
and market manipulation, respectively. OneChicago notes that it is an 
affiliate member of the Intermarket Surveillance Group (``ISG'') and 
has executed an affiliate agreement, an agreement to share market 
surveillance and regulatory information and an addendum to the 
foregoing agreements with the other ISG members. The Information 
Sharing Rule permits OneChicago to enter into agreements for the 
exchange of information and other forms of mutual assistance with 
domestic or foreign self-regulatory organizations, associations, boards 
of trade and their respective regulators. To the extent permitted by 
any such agreement, OneChicago's Chief Executive Officer, or his or her 
designee, will be authorized to provide information to any such 
organization, association, board of trade or regulator that is a party 
to an information sharing agreement. Additional provisions related to 
coordinated surveillance are contained in sections I.A.(ix)(a), 
III.A(ii)(g) and IV.A(ii)(b) of the OneChicago Listing Standards.
---------------------------------------------------------------------------

    \40\ 15 U.S.C. 78f(h)(3)(I).
---------------------------------------------------------------------------

    Clause (J) of Section 6(h)(3) of the Act \41\ requires that a 
market on which a security futures product is traded have in place 
audit trails necessary or appropriate to facilitate the coordinated 
surveillance referred to in the preceding paragraph. The audit trail 
capability provided by CBOEdirect, the trade matching engine utilized 
by OneChicago, will create and maintain an electronic transaction 
history database that contains information with respect to all orders, 
whether executed or not, and resulting transactions on OneChicago. This 
applies to orders entered through CBOEdirect terminals as well as to 
orders routed to CBOEdirect through CME's Globex[reg] system. The 
information recorded with respect to each order includes: time received 
(by CBOEdirect or Globex[reg]), terms of the order, order type, 
instrument and contract month, price, quantity, account type, account 
designation, user code and clearing firm.
---------------------------------------------------------------------------

    \41\ 15 U.S.C. 78f(h)(3)(J).
---------------------------------------------------------------------------

    OneChicago's electronic audit trail will consist of data recorded 
by CBOEdirect and Globex[reg], and OneChicago will have full access to 
all such data. Information logged by CBOEdirect, including in respect 
of orders received through CBOEdirect terminals, will be archived and 
provided to OneChicago each day. Orders received through Globex[reg] 
will be archived and maintained at CME. Together these data sets will 
enable OneChicago to trace each order back to the clearing firm by or 
through which it was submitted. If any question or issue arises as to 
the source of an order prior to submission by or through a clearing 
firm, OneChicago will request that the clearing firm provide an 
electronic or other record of the order.
    For orders that cannot be immediately entered into either Chicago 
Board Options Exchange, Inc (``CBOE'') or CME systems, and therefore 
will not be recorded electronically by CBOEdirect and Globex[reg] at 
the time they are placed, OneChicago Rule 403(b) requires that the 
Clearing Member or, if applicable, the Exchange Member or the Access 
Person receiving such order must prepare an order form in a non-
alterable written medium, which must be time-stamped and include the 
account designation, date and other required information (i.e., order 
terms, order type, instrument and contract month, price and quantity). 
Each such form must be retained for at least five years from the time 
it is prepared. In addition, OneChicago Rule 501 establishes a general 
recordkeeping requirement pursuant to which each Clearing Member, 
Exchange Member and Access Person must keep all books and records as 
required to be kept by it pursuant to the CEA, CFTC regulations, the 
Act, regulations under the Act and the Rules of OneChicago. OneChicago 
Rule 501 also requires that such books and records be made available to 
OneChicago upon request. Current CFTC regulations require books and 
records to be maintained for a period of five years.
    Block trades will be entered in CBOEdirect by OneChicago's 
operations management after they are verbally reported by designated 
individuals at the Clearing Member for the selling party. At the time 
of each such verbal report, a trade identification number will be 
assigned and provided to the caller. Both the buyer and the seller in 
each trade will then follow up the verbal report by submitting a block 
trade reporting form via facsimile or email to OneChicago. Generally, 
the same procedures apply to exchange of future for physical (``EFP'') 
transactions, except that no verbal report is required for such 
transactions. Since block trades and EFP transactions involve orders 
that cannot be immediately entered into either CBOE's or CME's systems, 
the Clearing Members or, if applicable, Exchange Members or Access 
Persons involved must comply with the procedures specified in the 
preceding paragraph.
    Clause (K) of Section 6(h)(3) of the Act \42\ requires that a 
market on which a security futures product is traded have in place 
procedures to coordinate trading halts between such market and any 
market on which any security underlying the security futures product is 
traded and other markets on which any related security is traded. 
OneChicago Rule 419 provides for trading in a security future to be 
halted at all times that a regulatory halt has been instituted for the 
relevant underlying security or securities.
---------------------------------------------------------------------------

    \42\ 15 U.S.C. 78f(h)(3)(K).
---------------------------------------------------------------------------

    Clause (L) of Section 6(h)(3) of the Act \43\ requires that the 
margin requirements for a security futures product comply with the 
regulations prescribed pursuant to Section 7(c)(2)(B) of the Act.\44\ 
OneChicago believes that its proposed Rule 515 regarding customer 
margin is consistent with the requirements of the Act. \45\
---------------------------------------------------------------------------

    \43\ 15 U.S.C. 78f(h)(3)(L).
    \44\ 15 U.S.C. 78g(c)(2)(B).
    \45\ The Commission notes that OneChicago's Rule 515 regarding 
customer margin was approved on November 7, 2002. Securities 
Exchange Act Release No. 46787 (November 7, 2002); 67 FR 69059 
(November 14, 2002) (SR-OC-2002-01). See supra note 9.
---------------------------------------------------------------------------

    For the reasons described above, OneChicago submits that the 
OneChicago Listing Standards and the proposed changes to the 
Information Sharing Rule, the Market Manipulation Rule, the Sales 
Practice Rule, the Trading Ahead Rule, the Trading Against Rule and the 
other proposed OneChicago rules filed herewith, satisfy the 
requirements set forth in Section 6(h)(3) of the Act.\46\
---------------------------------------------------------------------------

    \46\ 15 U.S.C. 78f(h)(3).
---------------------------------------------------------------------------

2. Statutory Basis
    One Chicago has filed these proposed rules pursuant to Section 
19(b)(7) of the Act.\47\ OneChicago believes that the OneChicago 
Listing Standards are authorized by, and consistent with, Section 
6(b)(5)\48\ of the Act because they are designed to prevent fraudulent 
and manipulative acts and practices and to

[[Page 841]]

promote just and equitable principles of trade.
---------------------------------------------------------------------------

    \47\ 15 U.S.C. 78s(b)(7).
    \48\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    OneChicago does not believe that the OneChicago Listing Standards 
will have an impact on competition because (i) It can be expected that 
other self-regulatory organizations that will list security futures 
products will adopt substantially similar listing standards and (ii) 
any concerns about possible anti-competitive effects should be 
evaluated in light of the standards applicable to other financial 
instruments based on ``narrowly based'' security indices or baskets, 
which are consistent with the OneChicago Listing Standards. In 
addition, OneChicago does not believe that the proposed amendment to 
the Information Sharing Rule will have an impact on competition because 
such amendment deals with procedural aspects of sharing information and 
is not substantive. Similarly, OneChicago does not believe that the 
proposed amendment to the Sales Practice Rule will have an impact on 
competition because it is designed to reflect the fact that members of 
OneChicago that are registered with the NFA will be subject to the 
sales practice rules of such organization rather than the sales 
practice rules of the NASD. Finally, OneChicago does not believe that 
the proposed amendments to the Market Manipulation Rule, the Trading 
Ahead Rule or the Trading Against Rule or the other proposed rules will 
have an impact on competition because such amendments constitute non-
substantive changes to reflect market practice in the areas to which 
they relate.

C. Self-Regulatory Organization's Statement on Comments on Proposed 
Rules Received From Members, Participants, or Others

    Comments on the OneChicago Listing Standards have not been 
solicited.

III. Date of Effectiveness of the Proposed Rules and Timing for 
Commission Action

    Pursuant to Section 19(b)(7)(B) of the Act,\49\ the proposed rule 
change, as filed with the Commission on November 7, 2002, became 
effective on November 8, 2002. Amendment No. 1 to the proposed rule 
change became effective on December 11, 2002. Within 60 days of the 
date of effectiveness of the proposed rule change, the Commission, 
after consultation with the CFTC, may summarily abrogate the proposed 
rule change and require that the proposed rule change be refiled in 
accordance with the provisions of Section 19(b)(1) of the Act.\50\
---------------------------------------------------------------------------

    \49\ 15 U.S.C. 78s(b)(7)(B).
    \50\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed 
rules conflict with the Act. Persons making written submissions should 
file nine copies of the submission with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. 
Comments also may be submitted electronically to the following e-mail 
address: [email protected]. Copies of the submission, all 
subsequent amendments, all written statements with respect to the 
proposed rules that are filed with the Commission, and all written 
communications relating to the proposed rules between the Commission 
and any person, other than those that may be withheld from the public 
in accordance with the provisions of 5 U.S.C. 552, will be available 
for inspection and copying in the Commission's Public Reference Room. 
Copies of these filings will also be available for inspection and 
copying at the principal office of OneChicago. Electronically submitted 
comments will be posted on the Commission's internet Web site (http://www.sec.gov).
    All submissions should refer to File No. SR-OC-2002-04 and should 
be submitted by January 28, 2003.


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\51\
---------------------------------------------------------------------------

    \51\ 17 CFR 200.30-3(a)(75).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-272 Filed 1-6-03; 8:45 am]
BILLING CODE 8010-01-P